Working with fellow institutional investors is key to successful deal making—and it is a trend on the rise, according to research from Invesco.
In its third annual survey of sovereign wealth funds (SWFs), the asset manager found working alongside peers significantly eased major challenges including sourcing deals, cost, and gaining board approval.
“The trend in sovereign collaboration was observed in our 2014 findings,” said Nick Tolchard, chair of Invesco’s Global Sovereign Group and head of Invesco Middle East. “However in 2015 this collaboration appears to be taken further by certain sovereigns who are developing infrastructure propositions specifically to target other sovereigns.”
Invesco found the presence of certain stakeholders on a team sheet would “effectively guarantee board approval for some sovereign investors.”
Last week, the Abu Dhabi Investment Authority (ADIA) highlighted the growth in total partnerships it had entered into in its 2014 annual review.
“Our primary strategy is to acquire minority equity stakes alongside proven financial and strategic partners, with an emphasis on developed markets but also an increasing focus on emerging markets,” the fund’s real asset investments report said.
“Many sovereigns whom we surveyed felt this to be a logical evolution, since those that are established are best placed to help emerging sovereigns enter new alternative asset classes,” Invesco said.
“Infrastructure is perceived as reducing [emerging market] risks to some extent, because in general they are mitigated by government support.” —InvescoADIA’s focus on emerging markets was also consistent with Invesco’s survey results. Of the almost 60 SWFs questioned—with more than $7 trillion in total assets—this asset sector was a popular choice for real estate and infrastructure investments.
“Firstly, emerging market infrastructure is perceived as a low-risk entry into emerging markets: sovereigns have struggled to deploy target risk asset allocations and realise the returns in emerging markets,” according to Invesco’s report.
However, the attractiveness of these markets to SWFs drops when looking more generally, Invesco said, due to concern around associated risks—namely political instability, corruption, regulation, and a lack of legal protection.
“Infrastructure is perceived as reducing all of these risks to some extent, because in general they are mitigated by government support,” the report said.
Consulting firm PwC estimated last year that the global annual spend on infrastructure would increase from $4 trillion in 2012 to more than $9 trillion by 2025.
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